When Miami-based Thomas J. Herzfeld Advisors looks at the Caribbean—specifically Cuba—it sees the last bastion of emerging markets. The firm is launching a pan-Caribbean hedge fund to capitalize on opportunities that it says will be as abundant as the region’s palm trees and golden sand beaches.
TJH, which advises and manages closed-ended funds, is prepping Havana Partners for launch within the first quarter. The firm hopes to attract some $100 million for the long/short equity fund by then.
Havana will invest in equities of exchanges domiciled in Caribbean basin countries, hedging its macro exposure with short index positions. It will also allocate a portion of its portfolio to fixed-income and private placements, which will be put into side pocket allocations.
TJH currently manages a closed-end sister fund of the new hedged offering that has been trading since July 1994, according to Erik Herzfeld, head of alternative strategies at the firm. “The closed-end fund is an onshore product and geared towards retail investors, but we got a lot of calls from institutional investors curious if we were going to offer other vehicles,” he said.
Herzfeld said the firm is “enthralled” with the Caribbean region and thinks that Cuba, which has been the subject of a U.S. trade embargo for more than 45 years, will open in the near future to foreign investments. “Cuba is one of the last communist countries and, in our view, it is going to be the next one to topple, and there should be an incredible amount of opportunities there,” Herzfeld says. “I used to run JPMorgan’s currency business in Asia on the derivatives side and when we were looking at Vietnam in 1999 and 2000, and it feels like that right now with Cuba.”
But the fact that the Cuban government does not appear poised for any drastic changes anytime soon—in spite of longtime leader Fidel Castro’s ill-health—means that Herzfeld will be placing his bets on other countries, including the Dominican Republic and Panama in sectors such as alternative energy and tourism.
“The Panama Canal is widening, so there is going to be a lot more cargo and shipping coming through, and the cheapest form of transportation is rail and ship so you’re going to see a lot more tankers go through there in a few years,” he says. “Trinidad is the biggest exporter to the U.S. of liquefied natural gas so there’s a lot of resources in the region.”
Havana Partners will charge a 2% management fee and a 20% incentive fee with a $1 million minimum investment requirement.